What is a Surety Bond?
In the simplest of terms a surety bond is a guarantee to three parties in a legally bonded contract. The three parties are known as the obligee, the principal, and the surety. The surety guarantees payment of a specified maximum sum or compensation in case the obligee incurs any damages or loss caused by the actions (or a failure to perform) of the principal.
The Principal is the person or company who has to purchase a bond. When the bond is purchased, the surety provides a financial guarantee to the obligee that the principal is financially sound to undertake the project.
The Obligee is the party that requires the principal to purchase a bond.
The Surety is a company that guarantees the bond. The surety provides the financial assurance of the principal. If the principal does not follow the terms and conditions of a bond, the obligee can make a claim and collect damages. If the claims are valid, the surety will reimburse the obligee and then seek reimbursement from the principal.
Surety bonds are required by those in business and professionals who provide services to consumers and government offices. There are different types of surety bonds, each with its own requirements and uses. They are categorized into two main categories:
CONTRACT SURETY BONDS
Contact sureties guarantee that projects are completed on time. Most municipalities and governmental agencies require construction bonds on public works projects.
There are three types of contract bonds;
A Bid bond makes sure that the applicant will enter into the agreement with financial backing and if given the contract, will be required to obtain payment and performance bonds. This bond ensures that the tender has been settled with good intentions.
A Performance bond is a protection to the obligee in case the contractor defaults on his or her obligations under the bonded contract. It guarantees the satisfactory completion of a project or a job within a limited time frame or deadline.
A Payment bond is a bond that makes sure that the contractor will pay any subcontractors, laborers and material bills associated with the construction project.
COMMERCIAL SURETY BONDS
Commercial surety bonds ensure that business people will do their job according to the licensing laws and industrial regulation. They are used by business owners, entrepreneurs and other working professionals.
License and permit bonds: Required by a municipality or other public body as a condition to grant a license or permit to engage in a specified activity required by the state, municipal or federal ordinance or regulation. It guarantees that a business will operate in accordance with federal, state, or local laws and regulations.
Court bonds: includes judicial bonds and are required of either a plaintiff or defendant in judicial proceedings, to preserve the rights of the opposing litigant or other interested parties.
Fiduciary bonds: required of those who administer a trust under court supervision.
Public official bonds: required by statute for certain holders of public office, to protect the public from unethical practices by an official or from an official’s failure to faithfully perform duties.
Miscellaneous bonds: any bond which does not fit into any of the other categories above.
Surety Bond Professionals is a trusted and loyal surety bond service company which offers its surety services in Massachusetts and throughout the country. In Massachusetts, there are several businesses that need permits or licenses to operate. Therefore, let Surety Bond Professionals be your guide in deciding which surety bonds will help to promote and protect your business.